Interest Rate Model
Aave uses a kinked interest rate curve. Below optimal utilization, rates rise gently (slope1). Above it, rates spike dramatically (slope2) to incentivize repayment and new deposits.
Rate Curve Parameters
Borrow Rate
4.25%
Supply Rate
2.76%
Rate at Optimal
5.00%
Max Rate
80.00%
The Kink Explained
The sharp rate increase at optimal utilization is the key mechanism. When too much of the pool is borrowed:
- Borrowers face rapidly increasing costs → incentivized to repay
- Suppliers earn much higher yields → incentivized to deposit more
- Result: Utilization naturally returns toward the optimal level